Yellen Navigates Identical Waters Charted by Bernanke

If you thought that The Same Old Song was just a sixties tune recorded by the Four Tops, you didn't attend yesterday’s session of The House Committee of Financial Services to hear Fed Chair Janet Yellen's remarks about the condition of the nation’s economy. Chief US economist Jim Sullivan at High Frequency Economics put it succinctly when, according to Forbes, he remarked that Yellen’s presentation was an “expanded version” of the most recent FOMC. In that presentation, according to Sullivan, Yellen offered no new information on “tapering, thresholds, forward guidance, or recent economic data.”

In fact, if someone asked Yellen herself what the differences are between her and her predecessor, she might as well have answered with one word: “None.” Instead, the new Fed Chair offered a protracted version of “none” when she told the House Committee: “His [Bernanke’s] leadership helped make our economy and financial system stronger and ensured that the Federal Reserve is transparent and accountable…”

In other words, if you’re looking for new ideas or new leadership from Janet Yellen, forget it! Look for the Fed’s dual mandate to toggle between inflation concerns and the unemployment picture, from now till the cows come home. We’re talking automatic pilot here, not innovative thinking.

If you’re looking for new ideas or new leadership from Janet Yellen, forget it!

In trying to get at the meat of Yellen’s presentation, let’s consider some of her carefully wrought phrases: “the FOMC and others have to be careful not to jump to conclusions.” (Who the “others” are she doesn't say.) With regard to tapering and bond purchases, only a “notable” change will cause the Fed to alter its current course. And only a “deterioration” would cause the Fed to increase bond purchases. According to Forbes, when asked about a higher rate of unemployment for young people and minorities, Yellen replied that “monetary policy is not a panacea.” If hedging and public speaking are equivalent abilities, Janet Yellen is clearly a brilliant public speaker.

Much of Yellen’s ambiguity — and, in all fairness, the ambiguity of politicians and other economists as well — centers around the rate of unemployment. If the current rate of 6.5% is such a great number, why isn't anyone happy about it? Why are the media and economists still bemoaning our dire straits?

Yellen herself volunteered some possible answers. The “long-term unemployed” are not counted in this number. Nor are the people working part time who are looking for full-time jobs. Nor are the people who are discouraged and have stopped looking for work.

But the nation is also burdened with longer-term demographic changes, such as the aging of baby boomers, which could be distorting the unemployment numbers. No one is quite sure anymore what the employment figure means or exactly whom we have to help.

The rate of inflation has also become an ambiguous number. Do we include the price of food and energy when we talk about inflation? Official sources would lead us to believe otherwise. So if the Fed’s job is to watch closely these two numbers, the unemployment rate and the inflation rate, and these two numbers are cloudy, how do we know when the Fed is doing the right thing? It looks like we’ll have to wait until Janet Yellen makes her next appearance before Congress.